StockFetcher Forums · General Discussion · Fosback Volatility Rating -- calling syntax heros<< >>Post Follow-up
143 posts
msg #123781
Ignore fotchstecker
5/12/2015 10:33:10 PM

This is beyond my ken and is not trivial. Still, it seems like it could be very valuable. I think there's probably only a handful of folks here who are capable of it. I'm not in that handful, and my attempts resulted in dust. Kevin? Four? Mahkoh? Others?

Someone interested in giving this a shot? If it works, let me know your exotic beer/coffee/tea of choice, because I'll send it to you. :) I found forum posts on using square root, and I reviewed the manual's notes on Beta, but I'm really not close to the syntax needed to create this rating.
I've been reading through a copy of Stock Market Timing by Fosback (great book, btw). In it, Fosback discusses a measurement he designed called "Market Logic Volatility Ratings".

"High volatility is a very desirable individual stock or portfolio attribute in a rising market."

Volatility Rating describes the potential of a stock to move faster than the market. It is an average of Beta and a "statistic derived from the Square Root Rule."

(more from the book)
"The Beta used here is a fifteen-quarter exponential moving average of quarterly Betas. (The more recent quarters receive more weight in the average.) In turn, each stock's quarterly Beta is derived from a comparison of its daily price fluctuations with the daily price fluctuations of the New York Stock Exchange Composite Index. The final Beta is multiplied by ten, so it is expressed in terms of the percentage stock price fluctuation that has historically accompanied a 10% move in the market. This relationship is expected to hold in the future, regardless of the direction in which the market moves. If the Beta is 15, it means the stock should rise 15% if the market rises 10%, and fall 15% if the market falls 10%."

Here's the formula:

"The terms to the left of the braces represent the widely used Beta statistic, while the remainder of the equation is a quantification of the Square Root Rule. The formula is constructed so as to give equal weight to each of these two measures, which is the same as calculating them separately and averaging the two.

The three left hand terms are: K1, a constant always equal to 5.0; Rms, the correlation coefficient showing how closely the fluctuations of the stock have been related to the fluctuations of the market to find the stock's relative volatility. The two symbols which look like a small "o" with a squiggle are lower case forms of the Greek letter Sigma. Mathematicians sometimes use Greek letters to stand for an entire commonly formula -- in this case the formula is for standard deviation.

The other half of the equation is somewhat more complex. Ps stands for the price of the stock, and the symbol which looks like an upside down "Y" is Lambda, standing for the amount the square root of the average priced stock will rise if the actual price of that stock rises 10%. What this particular part of the formula tells us to do is: first, find the square root of the price of the stock we are analyzing, add the amount represented the Lambda to that square root, square the sum, and then divide the it all by the price of the stock. This gives us the ratio of the future price to the present price. We then subtract K2, a constant always equal to one, and multiply the result by K3, a constant always equal to 50. Adding this result to the Beta result obtained from the left half of the equation, we have our Volatility Rating."

StockFetcher Forums · General Discussion · Fosback Volatility Rating -- calling syntax heros<< >>Post Follow-up

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